NetApp FYQ4 EPS Beats; Q1 View Light; Starts Dividend

By Tiernan Ray

Shares of enterprise storage and networking vendor NetApp (NTAP) are up 82 cents, or 2%, at $37.45, in late trading, after the company this afternoon reported fiscal Q4 revenue that missed analysts’ estimates slightly, forecast this quarter’s results below consensus, raised its buyback plan, commenced a quarterly dividend, and said it would lay off 900 workers.

Revenue in the three months ended in April rose a little less than 1%, year over year, to $1.72 billion, yielding EPS of 69 cents.

For the current quarter, the company sees revenue in a range of $1.48 billion to $1.58 billion, and EPS in a range of 45 cents to 50 cents. That is below the consensus for $1.6 billion and 53 cents.

NetApp announced its board authorized an additional $1.6 billion in share repurchases, on top of its existing $1.4 billion plan. The company plans to buy back $3 billion of shares in the next three years.

NetApp also said it would begin paying a quarterly dividend of 15 cents per share.

NetApp said it plans to lay off 900 workers as part of a “realignment of resources and restructuring which includes a global workforce reduction,” out of a total headcount of just over 13,000. The layoffs will result in a $50 million to $60 million one-time charge to pretax earnings.

Update: Following the report, CFONick Noviello was kind enough to speak with me by phone.

Noviello emphasized firstly several things that had gone right in the quarter. “We did what we said we would do,” he said. By that he meant delivering revenue within the company’s forecast range of $1.7 billion to $1.8 billion, and earnings per share toward the high end of the company’s 65 cents to 70 cents forecast range.

Noviello also mentioned the growth in its branded revenue, such as Data ONTAP, stating that it demonstrated the success of the company’s main areas of innovation. He said sales of more than 44 petabytes of flash-based storage equipment was evidence the company is making strides as the storage industry moves to using more and more flash.

I asked Noviello why the company was laying off staff. He responded,

In the context of an environment in which we’re doing very well, we always need to look at and make sure our resources are best aligned and best directed where they can be around the globe. One area of disinvestment is OEM revenue, as OEM revenues were down, year over year. One area we are lowering our investment are the go-to-market and technical innovation around OEM. We started seeing a reduction in revenue in Q3, we expected it would continue.

I asked Noviello if such reductions would imperil the company’s relationships with partners and OEMs.

I don’t see it as a compounding the decline in OEM revenue. This is about looking to where NetApp sees the biggest gain. NetApp is a partner-friendly company. Some of the re-alignment is focused on those partners where we have the biggest potential gain over time. So, for example, the Cisco [Systems (CSCO)] partnership for converged infrastructure is one where we see tremendous opportunity. Our Arrow [Electronics (ARW) and Avnet (AVT) partnerships had big gains in the quarter and contributed 37% of revenue in the quarter.”

I asked Noviello why it was choosing to start a dividend and boost its buyback outlook at this time:

The capital allocation demonstrate the focus on, and the confidence in, the future, and our ability to generate cash. We’ve done a lot of work in the course of the last year working through our capital structure. We’ve been buying back stock. But we think as we come to the end of this year, we have the ability to put these points down, these points around dividend and buybacks. We’ve spent a lot of time working on it with our board, and with 50% of our shareholder base.

I asked Noviello if the company was setting any specific targets for return of cash, such as percentage or proportion of free cash flow. He said not for the time being.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.